China Set to Surpass U.S. as World's No. 1 Business Travel Spot

For U.S. business travelers, 12-hour flights to fast-growing China may soon be the norm.

China is set to surpass the U.S. as the world's No. 1 business travel destination by 2015 as travel spending there continues to accelerate and its economy improves, according to a new industry study.

Business travel spending in China will increase by 17% in 2012 and 21% in 2013 to $202 billion and $245 billion, respectively, according to a study by the Global Business Travel Association. Business spending in the U.S. last year was $250 billion.

The announcement by the GBTA comes amid increased consumer spending in China that has enticed many Western manufacturers and real estate moguls to drool over its growing middle class and population of 1.3 billion.

The industry group forecasts that at least two-thirds of the growth in China will be real increases in trips and spending as opposed to just rising travel prices, accompanied by GDP growth over the next two years of 8% to 9%.

That's a combination that, with the country's growing commitment to building infrastructure, could swing China ahead of the U.S. in terms of business travel within three years.

“China’s phenomenal economic growth over the last decade has been mirrored in business travel, which is now a key contributor to, and benefactor from, the country’s expansion,” GBTA chief operating officer, Mike McCormick, said.

The country has been expanding airports and building new hotels in an effort to meet rapidly rising demand for business in China.

That includes doubling the size of China’s four largest airports – Beijing, Shanghai-Pudong, Shanghai-Hongqiao and Guangzhou – over the last 10 years, as well as the doubling or even tripling of lower-tier airports, with plans to build up to 100 new airports over the next decade.

Earlier this year, Holiday Inn parent InterContinental Hotels Group (NYSE:IHG), currently the largest international hotel operator in China, unveiled a new luxury hotel brand in China called Hualuxe Hotels and Resorts with plans to operate in at least 100 Chinese cities within 15 to 20 years.

IHG, which already operates more than 160 hotels across 60 cities in China, said in March that it was expanding its presence to reach China’s fast-growing travel market. Citing projections from the China National Tourism Administration, IHG said Chinese domestic travel is expected to reach 3.3 billion trips annually in 2015, with the hotel market projected to grow by 5% to 8% annually by 2030.

Of course, the growth isn’t just in China, as outbound trips from the country are forecast to grow to more than 100 million from just 10 million over the next 10 to 15 years.

Either way, the increased investment in Chinese infrastructure is vital to keep up with “the explosion in demand,” GBTA said, which is a reflection of the country's "rapid economic growth."

The forecasted improvements build on average business travel spending - as a percentage of overall travel - of 16% from 2000 to 2011, largely driven by an increase in meetings, incentives, conferences and exhibition business trips. Spending per-trip also climbed during that period, as did domestic trips.

In 2013, international outbound travel spending by Chinese business travelers is expected to increase even more as a percentage of total spending to 27% in 2013. Domestically, spending is forecast to reach $233 billion.

“From this report we can see just how explosive this growth is going to be over the next few years,” GBTA Asia regional director, Welf Ebeling, said in a statement. “Business travel drives the economy and China is no exception.”

A shift in Chinese policies have led to a promotion of domestic consumption and reduced the country’s exposure to external markets. That helped it for the most part weather the Great Recession and become “relatively resilient” in the economic downturn's wake, according to the GBTA.

With GDP growth projected to rise 8.2% in 2012 ad 8.9% in 2013, the industry group expects that China will continue to experience “large growth rates.”

However, one remaining weakness that could potentially dampen the growth of China’s business travel industry is the European sovereign debt crisis.

China has about half of its exports headed to Europe and the U.S. and is therefore dependent on the economic health in the West. It took an immediate hit last year at the start of the eurozone debt crisis.

Yet, China has so far proven resilient and as it continues to focus on growing domestic spending and lowers its dependence on exports to the West, GBTA officials said its diversified economy will prepare it for future storms.